Local Instrumental Variables

73 Pages Posted: 17 May 2000 Last revised: 11 Sep 2010

See all articles by James J. Heckman

James J. Heckman

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Edward Vytlacil

Yale University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: April 2000

Abstract

This paper unites the treatment effect literature and the latent variable literature. The economic questions answered by the commonly used treatment effect parameters are considered. We demonstrate how the marginal treatment effect parameter can be used in a latent variable framework to generate the average treatment effect, the effect of treatment on the treated and the local average treatment effect, thereby establishing a new relationship among these parameters. The method of local instrumental variables directly estimates the marginal treatment effect parameters, and thus can be used to estimate all of the conventional treatment effect parameters when the index condition holds and the parameters are identified. When they are not, the method of local instrumental variables can be used to produce bounds on the parameters with the width of the bounds depending on the width of the support for the index generating the choice of the observed potential outcome.

Suggested Citation

Heckman, James J. and Vytlacil, Edward J., Local Instrumental Variables (April 2000). NBER Working Paper No. t0252. Available at SSRN: https://ssrn.com/abstract=228062

James J. Heckman (Contact Author)

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Edward J. Vytlacil

Yale University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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